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May 2015

Hewlett-Packard is selling a 51% stake in its Chinese server business to Tsinghua Holdings for $2.3 billion. The result will be a joint venture worth $4.5 billion with the investment arm of China's Tsinghua University.
The new company with about 8,000 workers and $3.1 billion in annual revenues will become a subsidiary of Unisplendour, the publicly traded unit of Tsinghua Holdings. HP said that it would still fully own its existing China-based enterprise services, PC business, and other operations in China.

A Chinese-language report in the Economic Daily News (EDN) states that Compeq Manufacturing's capital spending will reach than $130 million this year. The funds will be used primarily to increase capacity at its plant in Chongqing, China and upgrade its facilities in Taiwan and Huizhou, China. The PCB maker reported net profits of $14.89 million for the first quarter of 2015, up 35.6% from a year earlier. The company expects 2nd quarter revenues to increase 10% sequentially due to strong demand for  smartphone and ultra-thin notebook circuits.

A critical moment for China?

China's growth rate is continuing to slow. Companies that once were enticed by China's welcoming incentives and low labor rates are moving out. This emigration is even beginning to include some of its "hi-tech" operations. These companies will not return.  The mandated labor rate increases coupled with increased social costs and elimination of incentives to locate new operations in China will cause a further reduction in the growth rate - one that cannot be offset by minor reductions in interest rates. Increased automation may cause long range unemployment or underemployment that must be offset with new business.

The current global economic situations, currency fluctuations, work force availability pale in significance to China's power to control virtually control all major aspects of  its own country including inflation. What is needed is a rapid decision to stop "killing the goose that laid the golden egg" behavior. To reinvigorate its economy it must cease the nearly 20% annual labor rate increases of the past few years.

According to an AP report, China, under President Xi Jinping, is also starting an Asian Infrastructure Investment Bank and has enlisted 57 countries to sign up. Such a venture is designed to broaden China's practice of using its state-owned companies and its workers on foreign capital projects. Britain, France and Germany, members of the World Bank and Asian Development Bank (WB&ADB) have broken with Washington and are seeking membership. The U.S. and Japan, leading shareholders of the WB&ADB, have expressed concern over the new bank's governance standards and the types of projects it might finance

On the other hand, what countries will benefit from the never-ending search for lower manufacturing sites? The Philippines (again?)? Mexico (again?). Vietnam (too late - too busy?)? India (need for infra-structure?). Indonesia? Malaysia? Will China's emerging electronics "giants" also seek off-shore sites to compete globally?

And, what actions will the U.S. and other Western economies institute to take advantage of the opportunities? Or, are they too internally divided to recognize, let alone take advantage, of the current situation?

Jabil Circuit, Inc. has secured approval from the Penang State government in Malaysia to purchase 20 acres of land at the Batu Kawan Industrial Park to support expansion plans. The company plans to further develop the Jabil Penang facility to support the company’s growth strategy in the Asia-Pacific region.
Jabil says that it chose Penang to expand its Malaysia operations due to the local availability of highly skilled talent; the mature local supply chain, which has around 3,000 well-developed suppliers from a variety of sectors; and the region’s excellent utility services. It plans to create 2,500 new skilled jobs there during the next 5 years.

MFLEX (Multi-Fineline Electronix) reported net sales for its first quarter ended March 31, 2015 of $149.1 million, an increase of approximately 27% more than the same period last year. The company's largest customer accounted for 65% of net sales and to newer customers accounting for approximately 30%, or $45.2 million. Two of these accounted for about 27% of sales for the quarter.
Net income $9.1 million for the period compared to a net loss for the same period last year. The The company generated $20.2 million in cash flows from operating activities during the first quarter. It had cash and cash equivalents of $155.4 million on March 31, 2015. MFLEX continues to maintain a strong balance sheet with no debt.

The age of the IoM in the IoT is upon us!

Two bold quotations from John Dulchinos, Jabil’s vice president of digital manufacturing: "...the model that’s served the industry so well for decades – locating in low-cost labor regions has reached its end. We’re seeing a greater demand for higher-skilled labor, driven by the reliance on digital and advanced technology, requiring that we rethink how we deploy automation in our operations." and "At last we’ve moved beyond the traditional manufacturing robot, and are seeing real world applications today of smart, collaborative robots that deliver three very key capabilities to advance manufacturing."

TTM and Viasystems announced that the companies have received notice from the Committee on Foreign Investment in the United States ("CFIUS") that it has concluded its review of TTM's proposed acquisition of Viasystems and determined that there are no unresolved national security concerns with respect to the proposed transaction. The proposed acquisition remains subject to review by the United States Federal Trade Commission TTM expects the acquisition to close in the second quarter of 2015.

April 2015

Israel’s advanced board fabricator Eltek Ltd. announced its financial results for the quarter ended March 31, 2015. Sales for the quarter ended March 31, 2015 were $9.7 million compared to revenues of $12.3 million in the first quarter of 2014. Operating loss for the period was $108,000 compared to an operating loss of $121,000 in the first quarter of 2014.

Asahi Glass has established a facility in China for the whole manufacturing process of glass substrates to meet the growing demands of TFT-LCD panels.

Toppan Printing will invest $20 million in Shanghai to increase its manufacturing capacity of photo masks to meet the expanding demands of the semiconductor manufacturers in China.

Shows, show, and more shows.

NEPCON China was moderately busy and boring for 2 days, then nearly silent on day 3 with nearly empty aisles and booths. The exhibit seemed "tired". Suppliers reported a fairly strong start to the year, then a sudden fall-off in April sales. - A correction? Meanwhile, China announced a forthcoming slight drop in interest rates to stimulate the economy.

There was a some excitement and new products shown by ASM Assembly which took a and dominated large corner of the exhibition hall to display its wares as it hosted a 30 table 'banquet" at the nearby Intercontinental. A large "section" of the exhibition floor was devoted to 3D AOI and spi systems by the well know pioneers and their copycat competition. It was difficult to sense any major difference in their products. Robotics and automation was a key theme of the show, but demonstrations were primarily with single station/function robots. Japan Unix's simulated robotic soldering demo enhanced by twin video presentations was interesting.

One of the most interesting automation news items at the show revolved around learning that WKKT had begun to  automate its food service operations that provides more than 12,000 meals daily to the workers in its EMS campus in Southern China. Food lines in the main cafeteria will be reduced from 10 to 8.  Direct labor will be reduced by eight. The food will be fresher  with less waste. The system was developed by a local university and will now be offered to other corporations. . Two "pilot" lines have been running for several months at WKKT.

Prior to the end of NEPCON China in Shanghai, which followed the CPCA SEMI shows in the same city last month, we were deluged with promotions for the "sister NEPCON shows" to be held in Chengdu (June 25-27) and Shenzhen as well as CTEX* and eMEX to open as a combined show in Suzhou May 20-22, the Del Mar Electronics and the Electronics New England events to be held on opposite coasts of The U.S. May 6-7 and another 50 or so shows in Asia promoted by Reed Exhibitions. And, don't forget the EIPC June Summer Conference in Berlin as well as the 65th ECTC (IEEE Electronic Components & technology Conference) in San Diego May 26-29!

Looking to the future one should check out the display, flexible material, coatings conductors and other needs of smart watches, smart wearables, and next generation smart phones at Touch China 2015 , the 8th International Touch Screen Technology and Equipment Exhibition (for electronics) in Shenzhen June 4-7 which will also hold the 2nd International Sapphire Industry Technology Exhibition. One must wonder if this will help drive the printed electronics technologies to a new level and broader acceptance. 

*A pre-show exhibitor list shows primarily Taiwan based companies, a few multinationals and many firms from the local area. 

How does a trusted supplier establish its trusted suppliers of boards, components and materials?

Plexus Aerospace, Defense and Security Services has received accreditation as a Microelectronics Trusted Source by the Defense Microelectronics Activity (DMEA). This accreditation is a key part of the Department of Defense (DoD) Trusted Source Program. It officially recognizes Plexus's subsidiary as a trusted supplier of microelectronics goods and services to end users within the United States government. This program was established to assess and verify the integrity of the companies that design, develop, manufacture and distribute critical national security microelectronics components. Plexus is one of just a few companies reported to have received this accreditation.

Compeq Manufacturing's March revenues were $98 million up 20.1% from March 2014. The company's first quarter revenues were up 20.6% from last year, helped by orders from Apple according to the Chinese language Economic Daily News

Huawei Technologies said that strong smartphone sales helped boost its 2014 net profit 33%. Earnings were $4.5 billion on a 20.6% sales increase to $46.5 billion. Sales by its consumer group, mostly smartphones, was up 32.6% to $12 billion.

March 2015

How to protect the future - support your local companies, incentivize modernization!

NEPCON China 2015 will again focus on electronics manufacturing automation focusing on automation system integration, a step beyond mere hardware equipment. Starting this year, Guangdong will run a three-year incentive plan to encourage companies in the Pearl River Delta (PRD) to replace manual labor with robotics. It is targeting 600 companies with this program. A company that procures robotics to replace manual labor will receive a 10-20% rebate from the government!

In February, the Dongguan municipal government published the Dongguan 2025 Manufacturing Strategy that included 43 strategic measures. One of these measures called for accelerated robotics adoption. Last year the Dongguan municipal government initiated a plan to encourage robotics adoption by providing an annual rebate of $32.2 million to support companies. Recently, the Hong Kong Productivity Council initiated a cooperation project with Kuka Shanghai to adopt automation solutions in Hong Kong and the PRD.

Electropac has become a new division of Mass Design, Inc. with the recent purchase of this printed circuit board manufacturer founded in 1976 in Manchester, New Hampshire. The planned takeover by former employees to form Valhalla Circuits announced a few months ago apparently was not successful.

Lower growth rates, the pressure of annual double digit mandated wage increases, and the spectre of potential increases in the 15% tax rate afforded the electronics industry to the country's norm of 25% for corporations is casting a shadow on future investment in China for foreign owned EMS companies. Pressure is already being applied by the federal government onto local and regional operations that may have over-committed in  past incentives to attract foreign industry. Many are trying to second guess the next "desirable" location if this occurs - even as domestic Chinese electronic manufacturing companies are ramping up their systems and their automation development activities.

I believe that China's electronics industry future success will depend greatly upon automation, the use of new technology in manufacturing, improved quality, a combination of licensing of off-shore products and technology, a new-found home-grown (including Taiwanese) "innovation", and its domestic market.

I remember "The Japan That Can Say No: Why Japan Will Be First Among Equals" the 1989 essay originally co-authored by Shintaro Ishihara, the Minister of Transport, who later became governor of Tokyo, and Sony co-founder and chairman Akio Morita. It was produced during the climate of Japan's economic rise. I wonder if there is any relevance to today's situation. I recall reading two versions: The first was a translation provided by a friend in the Pentagon. The second, several months later, was a slightly different less threatening version that was reportedly published in English in Japan for "public consumption" by Americans.

PR NEWSWIRE states that HDI was still a main engine of growth in rigid PCB field in 2014, and is expected to maintain the momentum in 2015. As for Anylayer HDI  technology increases in Greater China combined with Panasonic's withdrawal from the Anylayer HDI field, various PCB companies will expand Anylayer HDI capacity in 2015. In 2014, the company that registered the largest growth in revenue from the HDI PCB business was Taiwan's Compeq. Its customers include Apple and Xiaomi. It increased 28.3% to $690 million, one step away from industry leader Unimicron.

ResearchInChina published its data’s top 20 PCB companies in the world for 2014. Industry sales totaled $59.6 billion for the year.

Global Top20 Rigid PCB companies in 2014 (revenue in USD million)

       1. TTM..............................(1,398)
       2. Tripod..........................(1,388)
       3. Compeq.......................(1,158)
       4. Viasystems..................(1,028)
       5. Hannstar Board..............(958)
       6. Unimicron.......................(918)
       7. MEIKO............................(860)
       8. ZDT.................................(850)
       9. AT&S...............................(838)

     10. Kingboard PCB...............(830)
     11. CMK................................(750)
            T.P.T...............................(750)
     12. Chin Poon Industry........(738)
     13. SEMCO............................(680)

     14. WUS Group.....................(650)
     15. IBIDEN...........................(630)
     16. Multek............................(608)
           Gold Circuit Electronics..(608)
     17. ISU PETASYS..................(508)
     18. Unitech PCB...................(478)
     19. Shennan Circuits............(451)

     20. Hitachi Chemical............(420)

Foxconn's PCB unit Zhen Ding Technology saw its net EPS climb to a record high of $0.29 in 2014.

Reports for the CPCA show collocated with SEMI and other shows in Shanghai are mixed. Traffic was heavy, except for the last day which was devoid of prospects. The first two days had "lots of people from other shows" but contained few managers from printed circuit companies. There was an increase in products designed for automation in keeping with China's trend to move in this direction. There were also a number of vertical wet processing lines. Our contacts stated that the exhibit was huge and full of copies of specialty chemicals, materials and process equipment. They stated that they saw several "improved" Chinese equipment sets, but did not note any new major introductions.

China is unusual in that it is so large with more than one manufacturing center with different cultures, that it has more than one trade association targeting the interconnect industry. It also has two major NEPCON shows, one in Shanghai and one in South China (Shenzhen). This makes it difficult for companies to reach "ALL" of its targeted markets with a reasonable budget. It also makes it easier for local companies to reverse engineer products and jump into the fray.

We'll attend NEPCON in Shanghai next month which will have over 500 exhibitors covering nearly 270,000 square feet of floor space. The event will debut The Electronics Manufacturing Automation (EMA) Pavilion.  Automation system integrators such as Intelligent Group Zhuhai, Robo-Technik, Nitto Denko, Apeexpress, JOT Automation, and IPTE will demonstrate their wares as electronic manufacturers attempt to stave off further flight from China by such firms as UniqloClarion, and Samsung  to other countries. due to rising costs and inefficiencies of high manual labor content.

Japan's Ministry of Economy, Trade and Industry (METI) released the final 2014 performance data for the electronics industry. Total domestic production for the electronics industry in 2014 was about $100 billion up 2.6% from 2013. The 3 major segments defined by the METI are consumer electronics, industrial electronics, and electronic components including ICs and LCD display panels.
The consumer electronics segment dropped 15.7% from last year. Sales of flat panel TVs declined 6.1% compared to the previous year which was one of the worst years for this segment. (Japanese manufacturers now have almost zero production). Sales of digital cameras went down 30% in 2014 – most likely due to the improved cameras in “smart phones”. Car navigation systems were more than 50% of consumer electronics sales even as it declined 5.9% from last year.
The industrial electronics segment had sales of $29.7 billion, down 3.1% from 2013.
The electronic components segment posted revenue at $61.8 billion, up 7.8%.
Printed circuit boards went down another 2.7% in 2014. 

One of the big questions is, "Will anyone save Sharp, once king of the flat panel display makers, and if so who?" Meanwhile, Sony which had posted losses in 5 of the past 6 years is seeing some success with its turnaround efforts. Strong sales of its image sensors and PlayStation video game consoles is helping to boost profits. Sony, in the midst of restructuring, has exited the PC business, its struggling smartphone, and TV divisions which are faced with strong competition from Korea, China, and Apple.

We continue to monitor and participate in the discussions on "re-shoring",  automation, and critical supply chains for domestic (U.S.) fabrication and assembly in the face of increasing global economic and stability difficulties. China has lowered its forecast 7% for the forthcoming year's growth rate. Major firms operating in the PRC (e.g., Hon Hai) continue to drive to automation. Some "off-shore" investors have moved to the interior or begun to explore other countries . Greece is resisting tightening its belt further to meet its Euro debt obligations. If it leaves the European community can another economically challenged country such as Italy be far behind?

Is there a domestic supply of all critically needed specialty chemicals, components, equipment needed to produce electronic devices for medical or military applications in the U.S.? Should there be? If not, are there trusted suppliers in secure locations to provide the aforementioned materials and machines, or boards and sub-assemblies? What is there to prevent factory shutdowns and supply disruptions if the domestic suppliers are foreign owned? (Note the closure of foreign-owned copper foil maker Oak-Mitsui TechnologiesHoosick Falls, New York plant in order to move operations to Malaysia in Southeast Asia - closer to its larger customer base).  For that matter, what is there to prevent a domestic company from relocating ALL of its production to a more viable (economic and/or market) site? After all, don't we engage in a free market system?

What does one do if the government decides that a product is critical and the maker has already moved all the manufacturing of said item to China, or Malaysia?

We should also note that there are currently sufficient domestic EMS houses to provide for production runs of medical or electronic devices. It is the supply chain of materials for bare board production, as well as the sources of components that are of concern.

Counterfeit components, materials and spare parts are entirely another matter and are already the focus of a number of major activities - both private and government. - Note our Comments & Discussion page for thoughts from "an undisclosed source".

See Bernie Kessler's opinion on our Comments & Discussion page. Send your comments and opinions on the above to:  gene@weiner-intl.com

Hong Kong added 10 names to the newest Forbes list of billionaires. It now has 55. Notable among this year’s newcomers to the Forbes  roll of billionaires is electronics magnate Tang Hsiang-chien, the father of Henry Tang, a former candidate for Hong Kong's chief executive in 2012, and Tom Tang, Honorary Founding Chairman of the HKPCA and Managing Director - Asia Pacific Region of TTM Technologies since April 2010. Prior to that, he was the Executive Chairman and Group Managing Director of Meadville Holdings (Meadville), which he joined in 1991. The Tangs are investors in U.S.-listed TTM Technologies.